This report looks at the current economic challenges facing South Eastern Europe and analyses their deeper causes. It argues that the fundamental problem the region faces is generating sustainable development in the circumstances of transition and, in some cases, overcoming state failure. This requires policies that address the main aspects of under-development, while preserving and nurturing the human capital in the region. The report offers some broad and some concrete policy recommendations on how to overcome the obstacles to economic development, lower the barriers to trade and investment in the region, and speed up integration with the EU. It is far from prescribing a cure-all medicine. The analysis tries instead to put the right diagnosis on the problem and stimulate the thinking and action of domestic and international policymakers on how to revitalize the human potential and the economic promise that the region holds.